By Thomas Kostigen
Women are better money managers than men. That’s the finding of a recent Goldman Sachs analysis of US fund managers.
Funds managed by all women outperformed all-male funds to date this year, according to Goldman’s analysis of nearly 500 large-cap equity funds. So, does that mean women are better at handling money than men, and that you are better having female financial professionals oversee your portfolio? Actually, yes, on both an advisor and pooled fund basis.
A University of California, Berkeley study found something similar—that on an individual basis female outperform males by more than a two percent return on investment while female fund managers outperform their male counterparts by nearly five percent on an ROI basis. The main reason for the outperformance is patience; women trade less. Males trade securities on average 45 percent more than females.
This risk-taking was chronicled deeply in the book Mean Markets and Lizard Brains by the economist Terry Burnham. He posited that financial decisions are based on unconscious core patterns hard wired into our brains which control our behavior. The least emotional investors turned in the best returns. And women, it turns out, are far less emotional about investing than men.
A Merrill Lynch study, for example, shows women are less likely to make investment mistakes. They don’t trade on hunches. And they don’t hang onto losing positions hoping they will turn around. Women in general, according to various studies, have a different motivational set of guidelines than men: they typically want to safeguard their investments for the long term.
If achieving better returns with an eye toward long-term investing sounds like the perfect characteristics for a financial advisor, you’d be right. Yet less than 20 percent of all financial advisors are women. Why?
Barron’s asked that exact same question last year. And here is what the venerable financial publication found: “There are problems throughout the career cycle, from recruiting young talent to difficult midcareer situations, and a lack of facilitating midcareer changes,” it said. Moreover, many colleges fail to educate students that the wealth management field even exists.
In short, Barron’s reported that there needs to be more college recruiting and diversity programs should be prioritized. As well, women advisors need to be beacons to others. This is beginning to happen. Just last week, Jane Fraser was appointed as Citigroup’s first female chief executive, indeed the first female of any major US bank.
As more and more women take on role model positions for others, the financial services industry is sure to change and gender diversify. If the financial performance numbers are any indication of future success, this will be a great tide for investors. Certainly, it is about time that this tide has come in and women are getting their dues for being terrific individual investors and portfolio managers.
To be sure, a lot of factors besides investment performance goes into choosing the right financial advisor to manage your finances. And selecting a financial professional strictly by their gender isn’t the best way to find the right match. Nor should excluding someone on the basis of their gender either.
Thomas Kostigen is a contributing writer to MyPerfectFinancialAdvisor, the premier matchmaker between investors and advisors. Thomas is a best-selling author and longtime journalist who writes about environmental, social, and governance issues.